/ 7 February 2019

Sona 2019: Ramaphosa’s renewed urgency welcomed

President Cyril Ramaphosa
President Cyril Ramaphosa (David Harrison/M&G)

President Cyril Ramaphosa’s second State of the Nation address on Thursday had, at its heart, efforts to reboot South Africa’s economy, including outlining major changes at power utility Eskom, which has been a stumbling block to growth and a weight on government’s finances.

But economists say more detail is going to be needed on how state support for Eskom, as well as another significant policy proposal such as the roll out of universal national health insurance (NHI), will be financed.

Markets and investors will look to the upcoming budget where more information will be provided, as well as after the elections, which Ramaphosa revealed will be held on May 8.

Nevertheless, the renewed urgency on, amongst other things, measures to address the size and capacity of the state and act on corruption were welcomed.

The government will support Eskom’s balance sheet, Ramaphosa announced, with Finance Minister Tito Mboweni expected to provide further details in the upcoming budget. This chimes with Eskom’s proposals, first put forward late last year, that at least R100-billion of its debt be taken up by government.

The company has been assailed by financial and operational issues, and with a debt burden of almost R420-billion, it is not generating enough revenue to cover its interest payments.

Ramaphosa stressed, however, that the support for Eskom will be provided without “burdening the fiscus with unmanageable debt”.

Eskom will also need to develop a new business model to ensure its survival in a changed energy landscape and avoid a similar financial crisis in the future.

“To bring credibility to the turnaround and to position South Africa’s power sector for the future, we shall immediately embark on a process of establishing three separate entities — generation, transmission and distribution — under Eskom Holdings,” Ramaphosa announced.

This process will include the establishment of an independent state-owned transmission grid, combined with the systems operator and power planning, procurement and buying functions he said.

Ramaphosa’s speech revealed a renewed sense of urgency to address the economic slump South Africa finds itself in said Sanisha Packirisamy, an economist at Momentum Investments

But certain elements such as plans for the NHI, while positive, provided little clarity on where the funding would come from, she said.

Ramaphosa announced in his speech that the long-awaited NHI Bill — which is expected to dramatically change South Africa’s healthcare landscape — “will soon be ready for submission to Parliament”.

Similarly, there was “no real meat around how they are going to address the debt issues facing Eskom,” Packirisamy said.

“There seems to be a wish list of things that we need to achieve in the economy, and there are some ways put forward in how we can get there, but I think what’s missing, to a certain extent, is the funding around most of these elements.”

The updated figures on investments generated through the investment conference Ramaphosa championed held last year was a “step on the right direction” Packirisamy explained.

Ramaphosa said that the conference “was not just a talk shop where empty promises were made”, revealing that projects to the value of R187-billion are being implemented, while another R26-billion are in pre-implementation phase.

The positive figures were important in a context where the country’s rate of fixed investment to GDP hovers at around 18%, she said. To generate better economic growth an ideal emerging economy like South Africa should be aiming for a rate of around 25%.

The overall tone of the speech was broadly positive, Jannie Rossouw, head of the school of economic and business sciences, at the University of the Witwatersrand said.

So too was Ramaphosa’s announcement of plans to recover money lost to the state through corruption; efforts to add capacity to law enforcement agencies and the initiative to reduce the size of the executive.

But greater detail, along with firm decisions on some of the thornier challenges facing Ramaphosa’s administration, was only likely to come after the elections said Rossouw.

To reverse the impact of state capture on government, Ramaphosa announced the establishment of an “investigating directorate” within the office of the national director of public prosecutions, tasked with dealing with serious corruption and associated offences. It will identify priority cases, drawn from evidence given at various commissions of inquiry recently, and will recover assets identified to be the proceeds of corruption, the president said.

One such commission was the commission of inquiry into governance and administration failures at the South African Revenue Service (Sars) led by retired Judge Robert Nugent.

Ramaphosa said the government has worked to stabilise and restore the credibility of Sars, with the latest effort being the process of appointing a new commissioner.

On Thursday morning, hours before Ramaphosa delivered his speech the national treasury announced that a panel, headed by former finance minister Trevor Manuel had been appointed to interview and shortlist candidates for the post of Sars commissioner. The panel is expected to complete its work in the next few weeks after which it will make recommendations to Ramaphosa.

Tertius Troost, a tax manager at Mazars, said while the stabilisation of Sars was important, Ramaphosa should have given clearer timelines about when the new commissioner will be appointed.

“It seems that he just touched on it and will be leaving most of the discussion to the February budget led by Finance Minister Tito Mboweni,” Troost concluded.